ROBUST OPTIMAL INVESTMENT STRATEGY FOR A DC PENSION PLAN IN THE MARKET WITH MISPRICING AND CONSTANT ELASTICITY OF VARIANCE

Sun, Jingyun1,2; Yao, Haixiang3,4; LI, Zhongfei5,6

2023-02-01

10.3934/jimo.2023008

Journal of Industrial and Management Optimization   Impact Factor & Quartile

1547-5816

1553-166X

This paper considers an optimal asset allocation problem for a de -fined contribution pension fund in a continuous time setting, and the manager is concerned about potential model misspecification. We suppose that the fi-nancial market consists of one risk-free asset, one market index fund whose price satisfies the constant elasticity of variance model, and a pair of risky as-sets with mispricing. Under the objective of maximizing the expected utility of the pension fund wealth at the retirement, the closed form expressions of the robust optimal investment strategy and the corresponding value function are obtained by using the stochastic control theory. Finally, some numerical examples are given to compare the difference between the ambiguity averse and the ambiguity neutral strategies, and to investigate the effect of relevant parameters on the strategy. We find that the optimal investment strategy is not a long-short symmetric strategy when the mispricing assets have different mispricing correct capability, and it will lead to significant utility loss for the manager if the model uncertainty risk is ignored.

Ambiguity-averse investor robust optimal control constant elasticity of variance power utility

SCI

English

Corresponding

National Natural Science Foundation of China["72061020","71871071","72071051","71721001"] ; Key Program of the National Social Science Foundation of China[21AZD071] ; Natural Science Foundation of Gansu Province of China[21JR1RA280] ; Natural Science Foundation of Guangdong Province of China[2018B030311004] ; Scientific Research Key Project in Gansu Province[GSSYLXM-06]

Engineering ; Operations Research & Management Science ; Mathematics

Engineering, Multidisciplinary ; Operations Research & Management Science ; Mathematics, Interdisciplinary Applications

WOS:000937574600001

AMER INST MATHEMATICAL SCIENCES-AIMS

Web of Science

1.Lanzhou Univ Finance & Econ, Sch Stat, Lanzhou 730020, Peoples R China
2.Ctr Quantitat Anal Gansu Econ Dev, Lanzhou 730020, Peoples R China
3.Guangdong Univ Foreign Studies, Sch Finance, Guangzhou 510006, Peoples R China
4.Southern China Inst Fortune Management Res IFMR, Guangzhou 510006, Peoples R China
5.Southern Univ Sci & Technol, Dept Finance, Shenzhen 518055, Peoples R China
6.Guizhou Univ Finance & Econ, Coll Big Data Stat, Guiyang 550025, Peoples R China

Sun, Jingyun,Yao, Haixiang,LI, Zhongfei. ROBUST OPTIMAL INVESTMENT STRATEGY FOR A DC PENSION PLAN IN THE MARKET WITH MISPRICING AND CONSTANT ELASTICITY OF VARIANCE[J]. Journal of Industrial and Management Optimization,2023.

Sun, Jingyun,Yao, Haixiang,&LI, Zhongfei.(2023).ROBUST OPTIMAL INVESTMENT STRATEGY FOR A DC PENSION PLAN IN THE MARKET WITH MISPRICING AND CONSTANT ELASTICITY OF VARIANCE.Journal of Industrial and Management Optimization.

Sun, Jingyun,et al."ROBUST OPTIMAL INVESTMENT STRATEGY FOR A DC PENSION PLAN IN THE MARKET WITH MISPRICING AND CONSTANT ELASTICITY OF VARIANCE".Journal of Industrial and Management Optimization (2023).